IRA Rollover Complete Guide

An honest framework for the decisions at hand. Not tax or investment advice — your specifics matter.

Direct vs indirect — never take a check

• Direct (trustee-to-trustee) rollover: funds move provider-to-provider. No tax withheld, no 60-day clock.
• Indirect rollover: provider mails you a check, 20% withheld automatically. You have 60 days to deposit the full amount (including coming up with the 20% from other funds) into an IRA.
• Miss 60 days = permanent taxable distribution. Do direct rollover unless you have a truly specific reason not to.

When rollover wins

• Old plan has bad fund menu. Target-date fund with 0.75% expense ratio vs Fidelity FZROX at 0%. Over 20 years on $500K, that's $60K+ of fee drag.
• You have multiple past 401(k)s. Simplicity and asset-allocation coherence matter.
• You want Roth conversion access. IRAs allow Roth conversions; most 401(k)s don't.
• Estate planning. IRAs offer more flexible beneficiary designations and stretch possibilities.

When staying in the 401(k) wins

• Age-55 rule. Separated from service at 55+? 401(k) allows penalty-free withdrawals before 59½. IRA does not.
• ERISA creditor protection. 401(k)s have federal-level protection from creditors and lawsuits. IRA protection varies by state and is weaker in bankruptcy.
• Backdoor Roth cleanliness. Pre-tax IRA balances trigger pro-rata on backdoor Roth conversions.
• Stable-value fund. Many 401(k)s have stable-value options yielding more than money market — unavailable in IRAs.

Roth conversion ladder

• Rolled IRA money can be converted to Roth. Pay ordinary income tax today; future growth and withdrawals are tax-free.
• Best in low-income years: gap year before Social Security, first year of retirement, sabbatical, or right after exit.
• Watch: Medicare IRMAA brackets, ACA subsidy cliffs, Social Security taxation thresholds — conversion timing matters.

Common mistakes

• Taking indirect rollover and missing the 60-day window.
• Rolling highly-appreciated employer stock into IRA instead of using NUA.
• Triggering pro-rata rule on future backdoor Roth by moving pre-tax into existing IRA.
• Not rolling inherited 401(k) properly — inherited IRA rules are different from regular rollover rules.